SaaS sure is popular, but it won’t kill traditional applications

When Boeing unveiled its first fully assembled 787 Dreamliner in July 2007—07-08-07 to be precise—CEO Jim McNerney proclaimed a revolution. “Once every 10 years, Boeing and its partners come together to change and revolutionize air travel, to make the world and the environment a better place,” McNerney told the crowd at Boeing's 787 plant in Everett, Wash.

When Boeing unveiled its first fully assembled 787 Dreamliner in July 2007—07-08-07 to be precise—CEO Jim McNerney proclaimed a revolution.

“Once every 10 years, Boeing and its partners come together to change and revolutionize air travel, to make the world and the environment a better place,” McNerney told the crowd at Boeing’s 787 plant in Everett, Wash.

McNerney may be less than objective about the impact Boeing and its aircraft have on the world at large, but there is reason to suggest the building of the 787 could some day be seen as a turning point in the history of aircraft manufacture. That’s because this was one of the first large-scale manufacturing programs to make widespread use of Software-as-a-Service.

This form of application delivery—widely referred to by the feisty acronym SaaS—today can deliver software applications over the Internet to thousands of users at a time. And while the suitability of SaaS for the full range of applications used in manufacturing is under debate, an increasing number of customer-facing, product development, transportation, and even enterprise management applications already are being used by goods makers.

At Boeing, SaaS played a critical role in design and assembly of the 787.

To build the 787, Boeing works with 132 structural and systems partners in Japan, Australia, Italy, the U.S., and elsewhere. Tim Opitz, a production executive responsible for systems integration and tools used for the 787, put it plainly in a recent Webcast. “For the first time, we’re asking partners not only to build parts, but design major portions of parts, and to assemble and deliver the assembled parts to Everett for final assembly.”

Some of these suppliers receive orders from Boeing via EDI. But most use the Exostar supply network to access SaaS-based supply chain management applications from E2open . This platform spans the complete order life cycle and returns process; tracks schedules, consumption, and replenishment; and is the means for collaboration across multiple manufacturing tiers.

What about midsize?

Despite large-scale SaaS deployments such as Boeing’s, doubts about SaaS persist. According to Roy Wildeman, senior analyst with Cambridge, Mass.-based Forrester Research , “More than half of U.S. and European manufacturing enterprises [interviewed in a September 2006 report] listed long-term cost, security, or integration issues as barriers [to SaaS adoption].”

Salesforce.com pioneered the SaaS model with its customer relationship management (CRM) application, and in how it has forged a network of partner-based extensions to its system—some of these well-suited for manufacturing. Firepond , for example—with its price, configure, and quote system for manufacturers—stresses ease of integration for manufacturing industry users attracted to Salesforce.com’s CRM solution. ( For more on Firepond’s SaaS-based approach to order configuration management, see the online version of this story at mbtmag.com ).

While the SaaS model offers many cost advantages, customizing SaaS applications can be problematic.

“While customization is [being done], organizations looking to heavily modify code and retain ownership of the intellectual property should stick to deploying software behind the firewall,” says Rob Bois, a director with Boston-based AMR Research .

Last October, Glovia International , a subsidiary of Fujitsu , announced formation of Glovia Services, offering SaaS solutions for small and midsize manufacturers; and introduction in the U.S. of GSInnovate, a solution based on Glovia International’s flagship ERP system, streamlined for the midmarket and delivered using SaaS.

Bill Lyons, a company VP, says there’s no doubt the technology is there to deliver ERP as SaaS. What makes it difficult for manufacturers with revenues up to $50 million is the lack of “services needed to support ERP business-process definition and implementation, regardless of the delivery model.”

Glovia Services’ hosting infrastructure is a single instance, multi-tenant system, with separate databases and localizations for individual customers. Users pay a monthly fee, plus a one-time service charge.

“This is where we have a clearly differentiated approach,” says Lyons. “The average cost of implementations has shrunk from $75,000 and 90 days to $40,000 in 60 days or less, based on experience.”

Studies indicate nearly half of manufacturers with 50 employees or less don’t have ERP today. Glovia Services claims several dozen manufacturing customers, and since its launch has increased the number of available manufacturing modules from 22 to 39, based on customer need.

Orlando-based Control Center LLC , a maker of control systems, streamlined its ERP costs by switching to GSInnovate. Says Michael Thomas, president, “I don’t see any difference in terms of the information I need to run the business.”

According to Beth Enslow, a VP with Boston-based AberdeenGroup , “Other suppliers offer ERP functionality in terms of human resources, customer relationship management, and sales, but Glovia is the first to provide full-scale, on-demand operational manufacturing capabilities.”

Working on it

Manufacturers’ most significant challenges with SaaS will come in trying to apply the model to processes like quality assurance and detailed production scheduling—things that are very site-specific and require more customization, according to Forrester’s Wildeman.

Fabrice Cancre, COO for Olympus NDT , a Waltham, Mass.-based maker of test and measurement instruments, would rather not deal with those potential issues. On the whole, Cancre is a happy SaaS user, praising NetSuite as a tightly integrated package of useful applications for sales, accounting, and e-commerce. He just won’t let it near his manufacturing operation.

“Manufacturing is a pretty complex thing. NetSuite doesn’t have the features to do that,” says Cancre. “On the other hand, an ERP system isn’t necessarily the best thing for managing customers. We found a nice separation—selling on one side, and manufacturing on the other.”

The administrative staff enters order data into NetSuite, which then transmits that information to one of six factories to begin production. “It works beautifully for us,” Cancre says.

As for Boeing—with the 787 launch party now safely in the distance—it’s fair to say that its supply chain performed exactly as expected. Its particular combination of EDI and Web-based software—not a pure SaaS model but a hybrid, if you will—may be a glimpse into the future.

“The application-centric nature of most SaaS deployments will make the combination of SaaS plus on-premise software increasingly common across manufacturers’ ecosystems,” Wildeman surmises.

Over time, Boeing expects to build new 787s within three days of receiving parts—a challenge Opitz believes Boeing’s mostly Web-based supply chain can meet.

But is it the E2open software or the SaaS delivery model that instills such confidence? Olympus’ Cancre has an opinion. “I like NetSuite more than I like software as a service,” he concludes. “I wouldn’t buy everything as a service.”

Aerospace SMB flying solo with SaaS enterprise model

Marc Benioff, the former Oracle executive who today heads Salesforce.com , declared the end of on-premise software in launching the company in 1999.

“It’s no different than what we went through with the PC,” argues Tien Tzuo, Salesforce.com’s chief strategy officer. “Software applications that were written without knowledge of the Internet are outdated.”

What’s more, Tzuo argues, some of the world’s most powerful and essential software is being delivered via the Internet. “Which systems have the most data on the planet? I’d argue Amazon,” he says. “Think of Amazon as a SaaS [Software-as-a-Service] company. I would say the computing power Amazon has to use is greater than any other company.”

In fact, Salesforce.com’s 646,000 users generate roughly five billion transactions each quarter. That’s up from 500 million just two-and-a-half years ago.

Justin Sparr, a company VP at Aerospace Composite Products , claims adopting SaaS transformed his business. The 10-employee company, based in Livermore, Calif., buys Kevlar, fiberglass, and carbon fiber in bulk and then reshapes the materials into composite parts, tubes, and plates for industrial uses. Revenue is expected to reach $3 million this year, up from $2 million in 2006, when Salesforce.com was first adopted.

Employees track everything in Salesforce.com, including elements of the manufacturing process.

“Let’s say a company orders five panels to be delivered one per week over the next five weeks. I’ll put in five line-item entries,” Sparr explains.

From those entries, Sparr can see the original purchase order, the price, the due date—even the drawings relating to the part being made. Sparr also built a field in Salesforce.com that acts as a link to an Aerospace Composite in-house server, where PDFs of designs are kept.

Sparr says the solution allows him to answer tough questions without hesitation. But does Aerospace Composites’ success spell doom for all on-premise software? Not even Sparr is sure of that.

“From a technology standpoint, there will always be applications that you need to run your business that aren’t online,” he concludes.